The Government's decision to intervene in the regulation of the telecommunications market has been sharply criticised by the State's three biggest operators, writes Jamie Smyth, Technology Reporter.

The telecoms operators, which generate annual revenues worth up to €4 billion, have all called for State policy to be reviewed, reflecting a growing rift between the Government and industry.

Eircom, Vodafone and O2 have all written to the Minister for Communications, Mr Dermot Ahern, describing the State's intervention as unnecessary and warning it could hurt future investment.

Vodafone has also challenged the legal basis upon which the Minister proposes to intervene in the telecoms market and says it will fight the measures unless they are sanctioned by the EU.

The criticism is contained in the firms' responses to the draft directions that were issued to the Commission for Communications Regulation (ComReg) in March 2004 by Mr Ahern.

The directions, which were recently adopted by ComReg as official regulatory policy, focus on enabling more competition in the market for telecoms, mobile and broadband internet services.

Of particular concern to Eircom is a direction to ComReg to reintroduce a price cap on Eircom's line rental if competitors are unable to introduce a comparable service this year. This direction was introduced in March by Mr Ahern following Eircom's decision to raise its line rental charges three times in a year.

In a response to Mr Ahern, which has been seen by The Irish Times, Eircom challenges the legal basis for a reintroduction of a price cap and criticises the draft directions for being "in conflict with some of the core principles of regulatory intervention".

Eircom also strongly criticises the absence of any economic-based analysis or regulatory impact assessment of the proposed policy measures as a "matter of particular concern".

Eircom's criticism of the Department of Communication's policy directions follows similar criticism of a Government policy to build new state networks throughout the State.

The two biggest mobile phone operators, Vodafone and O2, also strongly criticise the policy directions for intervening unnecessarily in the mobile market. Both firms expressed particular concern about measures to force them to open their mobile networks for competitors to use.

Vodafone said the new measures could only be imposed following a major review of the market by ComReg which conformed to new EU regulations.

The firm said it was concerned by "the apparent shift in Government policy away from the existing model of long-term infrastructure competition and towards, it seems, a services-based model of competition".

Vodafone said the measures could undermine the rationale for investment in networks and innovative services in the future.

However, smaller telecoms firms in the Irish market warmly welcomed the policy directions. Esat BT described them as "timely" and Chorus said it "fully supported" the State-sponsored directions.

A report on the consultation process published by the Department for Communication recommended that no further policy directions were required.

A spokesman for Mr Ahern said yesterday that the Minister intervened to protect consumers and the interests of the economy.